Kratos Reports First Quarter Fiscal 2016 Financial Results
Successfully Receives Two New High Performance Tactical Unmanned Aerial System Program Contract Awards
Affirms 2016 Full Year Financial Guidance
As communicated with the Company's fiscal 2015 financial report in
Also as communicated with the Company's fiscal 2015 financial report in
Operationally, Kratos'
business units reporting first quarter 2016 year over year organic revenue growth included:
Kratos' book-to-bill ratio in the first quarter of 2016 was 1.0 to 1.0. Kratos' total backlog at the end of the first quarter of 2016 was
Important contract awards and achievements reported by
Kratos received a Phase 1 contract for DARPA's Gremlins program, which seeks to develop innovative technologies and systems enabling reliable airborne launch and airborne recovery of volley quantities of low-cost reusable unmanned air systems.
Such systems, or "gremlins," would be deployed with a mixture of mission payloads capable of generating a variety of effects in a distributed and coordinated manner, providingU.S. forces with improved operational flexibility at a lower cost than is possible with conventional, monolithic platforms.
Phase 1 of the Gremlins program is intended to pave the way for a proof-of-concept flight demonstration that would validate the airborne launch and airborne recovery concept of multiple gremlins.
The Gremlins program plans to explore numerous technical areas, including:
-- Launch and recovery techniques, equipment and aircraft integration concepts
-- Low-cost, limited-life airframe designs that leverage existing technology and require only modest modifications to current aircraft.
Individual Phase 1 contracts have been awarded to four contractors.
Kratos successfully received and is now under contract for a second high performance tactical UAS opportunity.Kratos is unable to provide additional information as to this new contract award at this time due to customer confidentiality obligations and related other considerations, though we anticipate being able to do so in the future.
Kratos received a$37.0 million firm-fixed-price contract for Air Force Subscale Aerial Target (AFSAT) peculiar spares, contractor logistics support, and out of warranty repairs.Kratos /CEi will provide procurement of peculiar reparable spares and consumables for use in the AFSAT Program during operations atTyndall Air Force Base ,Florida ; and theUtah Test and Training Range .
Kratos received an$18.7 million award for the Lot 12 option on the previously awarded AFSAT Lots 11-13 production contract. Pursuant to this award,Kratos /CEi will provide an additional quantity of 21 AFSAT production target aircraft plus the associated warranty.
Kratos received contract awards totaling approximately$10.5 million in missile defense, radar system and specialty product orders.
Kratos is a key member of theTrabus Technologies, Inc. team that was awarded a$7.4 million Indefinite Delivery Indefinite Quantity (IDIQ) contract supporting SSC Pacific Code 551. Under this contract the team will provide engineering, technical and programmatic services for airborne communication and networking systems, and associated certification and information assurance for new development, current operations and planned upgrades. This contract includes two one-year option periods, which if exercised, would bring the total contract value to$12.6 million .
Kratos received a contract by theU.S. Naval Surface Warfare Center , Port Hueneme Division for Oriole Thrust Vector Control (TVC) Systems valued at$5.5 million . Under the awarded contractKratos will deliver several Oriole TVC systems to support ongoing experimental, test and other support missions. The Oriole TVC system provides increased capability and dispersion reduction for Kratos' Oriole solid propellant rocket motor.
Kratos received a$21.4 million IDIQ, cost-reimbursement contract for technical support in the areas of project management, system engineering, research, test and evaluation, logistics, integration, technical troubleshooting, installation, and security. This new contract award has a three-year base period and two one-year option periods which, if exercised, would bring the potential value of this contract to$36.2 million .
Kratos received a new task order valued at$11.2 million for satellite and communication system products, hardware and equipment from an unnamedU.S. government agency. This is the third task order against a$49.0 million firm fixed price, IDIQ, single contract award to the company announced last year.
- Kratos' ISI business unit was awarded a contract by SKY Perfect JSAT (SJC) for the design, supply, delivery, installation and test of a TT&C antenna and associated RF system for the JCSAT-16 satellite. The project, which has successfully completed the critical design review phase, is scheduled for completion this summer, well in advance of the JCSAT-16 launch, scheduled for later in 2016.
For the first quarter ended
In the first quarter of 2016,
Kratos' first quarter 2016 cash flow and financial results from operations were reduced by continued significant discretionary internally funded investments the Company is making, primarily in the unmanned systems and satellite communications areas, including maintaining a significant number of critical resources and key personnel in the Company's Unmanned Systems Division, previously working on the Company's UTAP-22 initiative, in anticipation of the two expected and recently awarded new UAS opportunities.
Cash flow from continuing operations for the first quarter of 2016 was a use of approximately
For the quarter ended
Management will discuss the financial results and its affirmed fiscal year 2016 guidance in a conference call beginning at
About Kratos Defense & Security Solutions
Notice Regarding Forward-Looking Statements
This news release and filing contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company's expectations regarding its future financial performance, including the Company's ability to sustain year over year organic growth in certain of the Company's business units, its bid and proposal
pipeline, demand for its products and services, including the Company's ability to successfully compete in the tactical unmanned aerial system area, performance of key contracts, an expected UAS award, the impact of the Company's restructuring efforts and cost reduction measures, including its ability to improve profitability and cash flow in certain business units as a result of these actions, timing of LRIP related to the Company's unmanned aerial target system offerings, as well as the level of recurring revenues expected to be generated by these programs once they achieve full rate production and market and industry developments, including the potential impacts on the Company's business resulting from the two year Omnibus Spending Bill and the 2016 U.S. Federal and
Note Regarding Use of Non-GAAP Financial Measures
This news release contains non-GAAP financial measures, including Adjusted EPS (computed using net income (loss) from continuing operations before income taxes, excluding amortization of purchased intangibles, stock compensation expense, transaction and restructuring related items and other, litigation related items, unused office space expense, contract design retrofit costs and unanticipated contract costs, excess capacity, investments in unmanned combat systems initiatives, the pro forma impact of cost reduction actions for the full quarter, and foreign transaction
gains and losses, less the estimated tax cash payments), Adjusted EBITDA and Pro Forma Adjusted EBITDA (which exclude, among other things, losses and gains from discontinued operations, restructuring and transaction related items, stock compensation expense, unused office space expense, and foreign transaction gains and losses, the pro forma impact for the full quarter of restructuring actions we have taken as if such actions had been completed at the beginning of the quarter, and the associated margin rates).
Unaudited Condensed Consolidated Statements of Operations | ||||||||||
(in millions, except per share data) | ||||||||||
Three Months Ended | ||||||||||
2016 | 2015 | |||||||||
Service revenues | $ | 82.6 | $ | 87.3 | ||||||
Product sales | 70.4 | 69.8 | ||||||||
Total revenues | 153.0 | 157.1 | ||||||||
Cost of service revenues | 60.3 | 66.0 | ||||||||
Cost of product sales | 56.8 | 52.8 | ||||||||
Total costs | 117.1 | 118.8 | ||||||||
Gross profit - service revenues | 22.3 | 21.3 | ||||||||
Gross profit - product sales | 13.6 | 17.0 | ||||||||
Total gross profit | 35.9 | 38.3 | ||||||||
Selling, general and administrative expenses | 34.0 | 32.9 | ||||||||
Unused office space, restructuring expenses, and other | 5.5 | 0.9 | ||||||||
Research and development expenses | 2.9 | 3.9 | ||||||||
Depreciation | 1.0 | 0.8 | ||||||||
Amortization of intangible assets | 2.7 | 3.7 | ||||||||
Operating loss from continuing operations | (10.2 | ) | (3.9 | ) | ||||||
Interest expense, net | (8.7 | ) | (8.8 | ) | ||||||
Other income, net | 0.3 | 0.1 | ||||||||
Loss from continuing operations before income taxes | (18.6 | ) | (12.6 | ) | ||||||
Provision for income taxes from continuing operations | 3.6 | 1.9 | ||||||||
Loss from continuing operations | (22.2 | ) | (14.5 | ) | ||||||
Loss from discontinued operations, net of income taxes | - | (1.7 | ) | |||||||
Net loss | $ | (22.2 | ) | $ | (16.2 | ) | ||||
Basic loss per common share: | ||||||||||
Loss from continuing operations | $ | (0.37 | ) | $ | (0.25 | ) | ||||
Loss from discontinued operations | - | (0.03 | ) | |||||||
Net loss | $ | (0.37 | ) | $ | (0.28 | ) | ||||
Diluted loss per common share: | ||||||||||
Loss from continuing operations | $ | (0.37 | ) | $ | (0.25 | ) | ||||
Loss from discontinued operations | - | (0.03 | ) | |||||||
Net loss | $ | (0.37 | ) | $ | (0.28 | ) | ||||
Weighted average common shares outstanding | ||||||||||
Basic | 59.6 | 58.3 | ||||||||
Diluted | 59.6 | 58.3 | ||||||||
Adjusted EBITDA (1) | $ | 4.6 | $ | 7.6 | ||||||
Proforma Adjusted EBITDA (2) | $ | 6.6 | ||||||||
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income (loss) plus (income) loss from discontinued | ||||||||||
operations, net interest expense, income taxes, depreciation and amortization, stock compensation, amortization of intangible | ||||||||||
assets, foreign transaction gain (loss), refinancing related costs, costs related to pending customer change orders, acquisition and | ||||||||||
restructuring related items, contract design retrofit costs, investment in unmanned combat systems, litigation related charges, and | ||||||||||
unused office space expense. | ||||||||||
Adjusted EBITDA as calculated by us may be calculated differently than Adjusted EBITDA for other companies. We have provided | ||||||||||
Adjusted EBITDA because we believe it is a commonly used measure of financial performance in comparable companies and is provided to | ||||||||||
help investors evaluate companies on a consistent basis, as well as to enhance an understanding of our operating results. Adjusted | ||||||||||
EBITDA should not be construed as either an alternative to net income or as an indicator of our operating performance or an alternative | ||||||||||
to cash flows as a measure of liquidity. Please refer to the following table below that reconciles GAAP net income (loss) to Adjusted EBITDA. | ||||||||||
(2) Pro forma Adjusted EBITDA as calculated by us may be calculated differently than Pro Forma Adjusted EBITDA for other companies. We | ||||||||||
have provided Pro Forma Adjusted EBITDA to reflect the impact of the restructuring actions that we took during the first quarter 2016 | ||||||||||
to eliminate personnel costs in our PSS and Modular Systems businesses. We believe that Pro Forma Adjusted EBITDA | ||||||||||
is helpful for investors to understand the pro forma full quarter's impact of the restructuring | ||||||||||
activities as if these actions had occurred at the beginning of the quarter. | ||||||||||
Reconciliation of Net income (loss) to Adjusted EBITDA and Pro Forma Adjusted EBITDA is as follows: | ||||||||||
Three Months Ended | ||||||||||
2016 | 2015 | |||||||||
Net loss | $ | (22.2 | ) | $ | (16.2 | ) | ||||
Loss from discontinued operations, net of income taxes | - | 1.7 | ||||||||
Interest expense, net | 8.7 | 8.8 | ||||||||
Provision for income taxes from continuing operations | 3.6 | 1.9 | ||||||||
Depreciation (including cost of service revenues and product sales) | 3.4 | 3.2 | ||||||||
Stock-based compensation | 1.5 | 2.0 | ||||||||
Foreign transaction (gain)/loss | (0.3 | ) | - | |||||||
Amortization of intangible assets | 2.7 | 3.7 | ||||||||
Acquisition and restructuring related items and other | 7.2 | 1.8 | ||||||||
Contract design retrofits and contract conversion adjustment | - | 0.7 | ||||||||
Adjusted EBITDA | 4.6 | $ | 7.6 | |||||||
Personnel costs eliminated on a pro forma basis as if eliminated for the full quarter | 2.0 | |||||||||
Pro forma Adjusted EBITDA | $ | 6.6 | ||||||||
Reconciliation of acquisition and restructuring related items and other included in Adjusted EBITDA: | ||||||||||
Three Months Ended | ||||||||||
2016 | 2015 | |||||||||
Excess capacity and restructuring costs | $ | 4.9 | $ | 1.4 | ||||||
Litigation related items | 1.9 | 0.1 | ||||||||
Investment in unmanned combat systems | 0.4 | - | ||||||||
Costs related to pending customer change orders | - | 0.3 | ||||||||
$ | 7.2 | $ | 1.8 | |||||||
Unaudited Segment Data | ||||||||||
(in millions) | ||||||||||
Three Months Ended | ||||||||||
2016 | 2015 | |||||||||
Revenues: | ||||||||||
Unmanned Systems | $ | 14.2 | $ | 12.4 | ||||||
Kratos Government Solutions | 108.6 | 107.2 | ||||||||
Public Safety & Security | 30.2 | 37.5 | ||||||||
Total revenues | $ | 153.0 | $ | 157.1 | ||||||
Operating income (loss) from continuing operations: | ||||||||||
Unmanned Systems | $ | (4.2 | ) | $ | (4.2 | ) | ||||
Kratos Government Solutions | (1.8 | ) | 2.4 | |||||||
Public Safety & Security | (2.7 | ) | - | |||||||
Unallocated corporate expense, net | (1.5 | ) | (2.1 | ) | ||||||
Total operating loss from continuing operations | $ | (10.2 | ) | $ | (3.9 | ) | ||||
Note: Unallocated corporate expense, net includes costs for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock purchase plan and restricted stock units), the effects of items not considered part of management's evaluation of segment operating performance, merger and acquisition expenses, corporate costs not allocated to the segments, and other miscellaneous corporate activities. | ||||||||||
Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA by segment is as follows: | ||||||||||
Three Months Ended | ||||||||||
2016 | 2015 | |||||||||
Unmanned Systems | $ | (1.4 | ) | $ | (1.0 | ) | ||||
% of revenue | -9.9 | % | -8.1 | % | ||||||
Kratos Government Solutions | 6.5 | 8.0 | ||||||||
% of revenue | 6.0 | % | 7.5 | % | ||||||
Public Safety & Security | (0.5 | ) | 0.6 | |||||||
% of revenue | -1.7 | % | 1.6 | % | ||||||
Total Adjusted EBITDA | $ | 4.6 | $ | 7.6 | ||||||
% of revenue | 3.0 | % | 4.8 | % | ||||||
Reconciliation of consolidated Pro Forma Adjusted EBITDA to Pro Forma Adjusted EBITDA by segment is as follows: | ||||||||||
Unmanned Systems | $ | (1.4 | ) | |||||||
% of revenue | -9.9 | % | ||||||||
Kratos Government Solutions | 7.5 | |||||||||
% of revenue | 6.9 | % | ||||||||
Public Safety & Security | 0.5 | |||||||||
% of revenue | 1.7 | % | ||||||||
Total Pro Forma Adjusted EBITDA | $ | 6.6 | ||||||||
% of revenue | 4.3 | % | ||||||||
Unaudited Condensed Consolidated Balance Sheets | ||||||||||
(in millions) | ||||||||||
2016 | 2015 | |||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 20.1 | $ | 28.5 | ||||||
Restricted cash | 0.7 | 0.7 | ||||||||
Accounts receivable, net | 208.8 | 206.8 | ||||||||
Inventoried costs | 52.6 | 55.6 | ||||||||
Prepaid expenses | 10.4 | 10.6 | ||||||||
Other current assets | 12.7 | 18.2 | ||||||||
Total current assets | 305.3 | 320.4 | ||||||||
Property, plant and equipment, net | 53.8 | 56.2 | ||||||||
Goodwill | 483.4 | 483.4 | ||||||||
Intangible assets, net | 33.8 | 36.5 | ||||||||
Other assets | 8.1 | 6.8 | ||||||||
Total assets | $ | 884.4 | $ | 903.3 | ||||||
Liabilities and Stockholders' Equity | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 39.8 | $ | 48.3 | ||||||
Accrued expenses | 29.9 | 33.1 | ||||||||
Accrued compensation | 32.6 | 36.8 | ||||||||
Accrued interest | 11.7 | 3.9 | ||||||||
Billings in excess of costs and earnings on uncompleted contracts | 49.0 | 42.3 | ||||||||
Other current liabilities | 5.9 | 6.1 | ||||||||
Other current liabilities of discontinued operations | 1.4 | 1.9 | ||||||||
Total current liabilities | 170.3 | 172.4 | ||||||||
Long-term debt principal, net of current portion | 444.4 | 444.1 | ||||||||
Other long-term liabilities | 31.1 | 28.5 | ||||||||
Other long-term liabilities of discontinued operations | 3.9 | 4.1 | ||||||||
Total liabilities | 649.7 | 649.1 | ||||||||
Commitments and contingencies | ||||||||||
Stockholders' equity: | ||||||||||
Common stock | - | - | ||||||||
Additional paid-in capital | 875.9 | 873.2 | ||||||||
Accumulated other comprehensive loss | (1.4 | ) | (1.4 | ) | ||||||
Accumulated deficit | (639.8 | ) | (617.6 | ) | ||||||
Total stockholders' equity | 234.7 | 254.2 | ||||||||
Total liabilities and stockholders' equity | $ | 884.4 | $ | 903.3 | ||||||
Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||||
(in millions) | ||||||||||
Three Months Ended | ||||||||||
2016 | 2015 | |||||||||
Operating activities: | ||||||||||
Net loss | $ | (22.2 | ) | $ | (16.2 | ) | ||||
Less: loss from discontinued operations | - | (1.7 | ) | |||||||
Loss from continuing operations | (22.2 | ) | (14.5 | ) | ||||||
Adjustments to reconcile loss from continuing operations to net cash used in operating activities from continuing operations: | ||||||||||
Depreciation and amortization | 6.1 | 6.9 | ||||||||
Deferred income taxes | 1.2 | 1.8 | ||||||||
Stock-based compensation | 1.5 | 2.0 | ||||||||
Litigation related charges | 1.7 | - | ||||||||
Amortization of deferred financing costs | 0.4 | 0.5 | ||||||||
Amortization of discount on Senior Secured Notes | 0.2 | 0.3 | ||||||||
Provision for non-cash restructuring costs | 3.0 | - | ||||||||
Provision for doubtful accounts | 0.3 | 0.1 | ||||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||||
Accounts receivable | (4.0 | ) | 10.1 | |||||||
Inventoried costs | (1.6 | ) | (7.5 | ) | ||||||
Advance payments received on contracts | 1.5 | 1.7 | ||||||||
Prepaid expenses and other assets | 0.1 | (1.5 | ) | |||||||
Accounts payable | (8.8 | ) | (6.8 | ) | ||||||
Accrued compensation | (4.2 | ) | (7.0 | ) | ||||||
Accrued expenses | (3.1 | ) | (3.1 | ) | ||||||
Accrued interest | 7.9 | 10.9 | ||||||||
Billings in excess of costs and earnings on uncompleted contracts | 6.7 | 5.3 | ||||||||
Income tax receivable and payable | 0.4 | 0.3 | ||||||||
Other liabilities | 1.4 | (2.3 | ) | |||||||
Net cash used in operating activities from continuing operations | (11.5 | ) | (2.8 | ) | ||||||
Investing activities: | ||||||||||
Change in restricted cash | - | 3.8 | ||||||||
Capital expenditures | (2.1 | ) | (1.9 | ) | ||||||
Net cash provided by (used in) investing activities from continuing operations | (2.1 | ) | 1.9 | |||||||
Financing activities: | ||||||||||
Repayment of debt | (0.3 | ) | (0.2 | ) | ||||||
Proceeds from exercise of restricted stock units, employee stock options, and employee stock purchase plan | 1.2 | 1.7 | ||||||||
Net cash provided by financing activities from continuing operations | 0.9 | 1.5 | ||||||||
Net cash flows from continuing operations | (12.7 | ) | 0.6 | |||||||
Net operating and investing cash flows of discontinued operations | 4.3 | (1.0 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | - | (0.4 | ) | |||||||
Net decrease in cash and cash equivalents | (8.4 | ) | (0.8 | ) | ||||||
Cash and cash equivalents at beginning of period | 28.5 | 33.5 | ||||||||
Cash and cash equivalents at end of period | $ | 20.1 | $ | 32.7 | ||||||
Unaudited Non-GAAP Measures | ||||||||||
Computation of Adjusted Earnings Per Share | ||||||||||
(in millions, except per share data) | ||||||||||
Three Months Ended | ||||||||||
2016 | 2015 | |||||||||
Loss from continuing operations before taxes | $ | (18.6 | ) | $ | (12.6 | ) | ||||
Add: Amortization of intangible assets | 2.7 | 3.7 | ||||||||
Add: Stock-based compensation | 1.5 | 2.0 | ||||||||
Add: Foreign transaction (gain)/loss | (0.3 | ) | - | |||||||
Add: Contract design retrofit costs and contract conversion adjustment | - | 0.7 | ||||||||
Add: Acquisition and restructuring related items and other | 7.2 | 1.8 | ||||||||
Adjusted loss from continuing operations before income taxes | (7.5 | ) | (4.4 | ) | ||||||
Estimated cash tax provision | 0.4 | 0.7 | ||||||||
Adjusted loss from continuing operations | $ | (7.9 | ) | $ | (5.1 | ) | ||||
Diluted income per common share: | ||||||||||
Adjusted loss from continuing operations | $ | (0.13 | ) | $ | (0.09 | ) | ||||
Weighted average common shares outstanding | ||||||||||
Diluted | 59.6 | 58.3 | ||||||||
Press Contact:Source:Yolanda White 858-812-7302 Direct Investor Information: 877-934-4687 investor@kratosdefense.com
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